Bankruptcy/Mortgage with guarantor

jon0

Hi Guys, just a quick one hopefully,
I have finally got to a point that I have been avoiding for years, and that is I am very likely to have to go BR in the coming months.
One question I have is that I own a House that has approx. £8,000 equity, my Dad is a guarantor on this mortgage. I currently rent the place out and I would hate to lose it.

I am renting as I have a family that is too big for the house I own. The question I hope you can answer is, if I go BR will the house go into my Dads name as he is guarantor? and will it affect his credit rating?

Thanks in advance.

Mouse1812

No, the house will be sold, the mortgage paid from the proceeds and the £8,000 left will go to the OR for your creditors. The OR may however accept an offer from your Dad to pay them off - ie buy back your Beneficial Interest for about £8,000 or less.

edit to add

Be careful I think the rental income may go to the OR and your Dad might have to start paying the mortgage, sure others will confirm you might need to be proactive on this

debt_doctor

Hi,

Your Dad needs look at exactly what his guarantor responsibilities are, and how long they last.
With your BR, I see the property being an asset without time limit to claim, any rent collected going to the OR. The mortgage upon it would not be an allowable expense - hence, apparently falling to Dad.

DD

Mouse1812

Which, if DD is correct, means you need to consider selling BEFORE you go bankrupt. If you do sell, get the best price possible and keep the change for the OR.

jon0

thank you,

I remortgaged 5 years ago and borrowed £7,500 from my parents to buy the ex out, so I would give any equity back to them??

Mouse1812

Unfortunately not, doing so would be a preference and the OR would ask for the money back to share between all creditors.

jon0

If I sold it before BR then I could give them the money back?

tigerfeet2006

Nope because you put them in a better position than your other creditors and the OR can still ask for the money back.

As DD says check the terms for the guarantor to see exactly what they say.

Mouse1812

NO. You must treat all (unsecured) creditors equally, it make no difference who they are, family or otherwise. To favour one creditor over another is strictly forbidden and the OR will look for and seek to recover any such payments.

Assuming you did not do so when you originally borrowed the £7,500 from your parents, you are also too late to give them a second charge over the property to secure the debt. The OR can go back several years and revoke any such agreements made prior to bankruptcy if they prejudice the interests of your other creditors.

Your parents will have to be included in your list of creditors.

That however is small fry compared to the apparent issue of your Dad having to pay a mortgage under his guarantee while the OR collects the rents. If the OR can just wait forever to cash in the property then you Dad could end up significantly more out of pocket than £7,500. He could effectively end up paying off your other creditors.

Hopefully more knowledgeable members will come along and confirm what your options are, but it appears to me that you need to sort this before going bankrupt.

dojoman

jon0 wrote: »

If I sold it before BR then I could give them the money back?

Who told you that you could do this?

jon0

Hi, nobody, I was saying it as a question, just asking.